The Real Estate (Regulation and Development) Act (RERA) has brought transparency and accountability to an industry that constitutes a significant portion of household wealth in India. Real estate represents over 77% of the total assets of the average Indian household, making it a critical sector for scrutiny and improvement.
While recently navigating a real estate transaction, I encountered several issues that highlight the uneven balance of power between buyers and developers. Common practices in agreements favor builders disproportionately, leaving buyers vulnerable. For instance, financial institutions impose rigid loan agreements, offering no room for negotiation. Similarly, builder agreements emphasize buyer obligations while remaining silent on builder responsibilities. In case of defaults, buyers are told to seek recourse through lengthy court procedures, revealing the gaps in consumer protection despite RERA's presence.
The Need for RERA
Before RERA's enactment in 2016, the real estate sector was largely unregulated. Buyers faced delays, fund misuse, and insufficient legal remedies. Although the Consumer Protection Act, 1986, existed, it was inadequate to address real estate-specific grievances. RERA was introduced to instill transparency, reduce fraud, and safeguard homebuyers' interests. The Act mandates state-level regulatory authorities, project databases, and stricter compliance, aiming to streamline and professionalize the industry.
Key Provisions and Benefits
- Mandatory Project Registration: All projects exceeding 500 square meters or eight apartments must register under RERA, ensuring compliance and protecting buyer interests.
- Financial Discipline: Developers must deposit 70% of funds collected from buyers into escrow accounts, restricting fund misuse and ensuring timely project completion.
- Accountability for Structural Defects: Builders are liable for rectifying structural defects for up to five years, reinforcing construction quality standards.
- Standardized Carpet Area Definition: Buyers are charged only for usable floor space, preventing overcharging for built-up areas like walls or common spaces.
- Advance Payment Cap: Developers cannot demand more than 10% of the project cost as an advance without signing a formal agreement.
- Penalties for Non-Compliance: Builders face stringent penalties, including imprisonment, for failing to comply with RERA provisions.
While these provisions offer significant buyer protection, challenges remain. Builders have adjusted prices to reflect new compliance costs, often passing the burden to buyers. Moreover, certain practices, such as inadequate updates on project sales and one-sided agreements, persist. These issues highlight the gap between RERA's intent and its implementation.
Persistent Challenges
Despite RERA's positive impact, numerous issues undermine its effectiveness. According to Maharashtra RERA data, 27,830 complaints have been filed, with many more likely across states. Common grievances include delayed possession, inconsistent project disclosures, and unfair contracts. Buyers struggle with filing complaints and weak enforcement of RERA orders. Developers often resist compliance, reflecting short-term, feudalistic attitudes toward consumer rights.
The commercial real estate sector fares worse, with small office buyers from the MSME sector particularly disadvantaged. These buyers face apathy and lack bargaining power against the builder lobby. On the other hand, developers grapple with challenges such as delays in government approvals, litigation risks, and stringent compliance requirements, particularly for smaller players.
Proposed Improvements
To enhance RERA's effectiveness and empower buyers, the following measures are crucial:
- Strengthen Regulatory Enforcement: Increase human resources in RERA authorities, improve complaint redressal mechanisms, and mandate compliance with model agreements.
- Leverage Technology: Use data mining and technology for better project surveillance, faster adjudications, and accurate disclosures.
- Affordable Office Spaces: Governments, in partnership with private developers, could create affordable office spaces for MSMEs, akin to affordable housing projects.
- Standardize Rules Across States: Establish a central RERA council, similar to the GST Council, to ensure uniformity and efficiency in real estate regulations.
- Simplify Compliance for Developers: Streamline processes and provide funding support to encourage transparency and professionalism.
Looking Ahead
In April 2024, the Ministry of Housing and Urban Affairs began a comprehensive review of the RERA Act to assess its impact and address existing gaps. This initiative signals potential improvements in the regulatory framework, aiming to balance buyer protection with developer needs.
RERA's success lies in fostering a fair, transparent, and accountable real estate ecosystem. Strengthening its provisions and addressing current challenges can ensure that this critical sector evolves to meet the aspirations of millions, while fostering economic growth.
